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PETITIONER: GOKAK PATEL VOLKART LIMITED

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, BELGAUM

DATE OF JUDGMENT17/02/1987

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH PATHAK, R.S. (CJ)

CITATION:  1987 AIR 1161            1987 SCR  (2) 309  1987 SCC  (2)  93        JT 1987 (1)   469  1987 SCALE  (1)361  CITATOR INFO :  R          1988 SC1236  (5)

ACT:     Central  Excises  and  Salt Act, 1944  section  11A  and Explanation  thereto,  scope of--Limitation of  six  months’ period--No  order  of  the  court  staying  the  service  of notice--Whether a show cause notice issued beyond the  limi- tation, period specified under section 11A is valid.

HEADNOTE:     A  show cause notice dated 29.1.1976 issued by  the  re- spondent to the appellant calling upon him to explain as  to why excise duty treating his product as "fabric" and not  as "yarn"  may not be levied, was challenged in the High  Court of Karnataka in Writ Petition No. 2632/ 1976. Pending  final disposal of the writ petition, an interim order staying  the collection  of  excise  duty as a "fabric"  for  the  period 1.4.1975 to 18.8.75 alone was passed with a specific  direc- tion  that the appellant should continue to pay excise  duty as  "yarn".  Finally  the writ  petition  was  dismissed  on 16.2.1981.     On 20th May, 1982, another notice No. 913 to show  cause was issued to the appellant simultaneously seeking to  raise a  demand for the period from 20.6.1976 to  28.2.1981  apart from for the period between 1.4.1975 to 18.8.1975 challenged in  the  earlier  writ petition. The  Karnataka  High  Court having rejected the plea of bar of limitation under  section 11A of the Central Excises and Salt Act, 1944 raised in  the writ petition challenging the said second show cause  notice and  demand,  the  appellant has come in appeal  by  way  of special leave. Allowing the appeal, the Court,     HELD: 1.1 Section 3 of the Act which contains the charg- ing provision clearly shows that levy and collection are two distinct and separate steps. [312H]     1.2  The  provision  of section 11A(1) and  (2)  of  the Central  Excises and Salt Act, 1944 make it clear  that  the statutory  scheme is that in the situations covered  by  the sub-section(1), a notice of show cause has to be issued  and sub-section(2)  requires  that  the cause shown  by  way  of representation  has to be considered by the  prescribed  au-

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thority and then 310 only  the  amount  has to be determined. The  scheme  is  in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who  is likely  to  be  prejudiced when the order  is  made,  before making the order thereof. Notice is thus a condition  prece- dent to a demand under sub-section(2). In the instant  case, compliance  with  this statutory requirement  has  not  been made, and, therefore, the demand is In contravention of  the statutory provision. [313E-G] 2.  Explanation  to section 11A of the Central  Excises  and Salt Act, 1944, which incorporates a well known principle of law,  in clear terms refers to ’stay of service of  notice’. The  High  Court order did not at all refer  to  service  of notice. The High Court having directed stay of collection of duty as ’fabric’ has not issued any interim direction in the matter  of issue of notice of levy of the  duty.  Therefore, the benefit of Explanation to section 11A of the Act is  not available to the Respondent. [313C-D]     Sirajul  Haq Khan & Ors. v. The Sunni Central  Board  of Waqf,  U.P. & Ors., [1959] SCR 1287; and N.B. San  jane  As- sistant  Collector of Central Excise, Bombay & Ors.  v.  El- phinstone  Spinning & Weaving Mills Co. Ltd., [1971]  3  SCR 506, 514 referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  161  Of 1986.     From the Judgment and Order dated 17.9.85 of the Customs Excise  and Gold (Control) Appellate Tribunal, New Delhi  in Appeal No. ED(SB) (T) 463/84-D.     Soli  J.  Sorabjee, Ravinder Narain,  Harish  Salve,  S. Ganesh and P.K. Ram for the Appellant.     B.  Datta,  Additional  Solicitor  General,  Mrs.  Indra Sawhney and Ms. S. Relan for the Respondent. The Judgment of the Court was delivered by     RANGANATH  MISRA, J. The fate of this appeal under  sec- tion  35(L) of the Central Excises and Salt Act,  1944,  de- pends upon the meaning and scope of the Explanation  appear- ing in section 11A of the Act.     The High Court of Karnataka by its order dated  4.6.1976 in Writ Petition No. 2632 of 1976 gave the following  direc- tion: 311               "Pending disposal of the aforesaid writ  Peti-               tion, it is ordered by this Court that collec-               tion  of  excise duty as a fabric be  and  the               same  is hereby stayed. It is further  ordered               that the petitioner shall however continue  to               pay  exercise duty as yarn and  shall  further               maintain  an  account  in  square  metres  for               future clearance." The said Writ Petition was ultimately dismissed by the  High Court on 16.2. 1981. The operative part of the Court’s final order ran thus:               "For  the reasons aforesaid, we make the  fol-               lowing order:-               (i) Rule discharged;                     (ii)  We  decline to interfere  at  this               stage  leaving open to the petitioner to  urge               all the contentions in reply to the show cause               notices."

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   On 20th May, 1982, a notice to show cause was issued  to the  appellant by the Assistant Collector, being Notice  No. 913,  and with this the Collector sought to raise  a  demand for  the period from 20th June, 1976 to 28th February,  1981 apart from for the period between 1.4. 1975 to 18.8.1975  in respect  of which an earlier show cause notice  dated  29.1. 1976 had already been issued.     It  is not disputed by the Revenue that the  appropriate period  of limitation to apply to the facts of the  case  is six  months as provided in section 11A of the Act  and  that the  Notice  issued  on 20th of May, 1982  was  beyond  that period. Reliance was placed on the Explanation for obtaining extension of that period. The Explanation reads thus:               "Where the service of the notice is stayed  by               an  order of a Court, the period of such  stay               shall  be excluded in computing the  aforesaid               period  of  six months or five years,  as  the               case may be." The  provision in the Explanation incorporates a  well-known principle  of law. Section 15 of the Limitation Act of  1908 (also of Section 15 of the Limitation Act of 1963)  incorpo- rates  the same principle. This Court in Sirajul Haq Khan  & others  v. The Sunni Central Board of Waqf, U.P.  &  others, [1959] SCR 1287 dealt with the effect of an order of  injuc- tion  in  the matter of computation of limitation.  At  page 1302  of  the Reports, Gajendragadkar, J. as  he  then  was, spoke for the Court thus. 312               "It  is  plain that, for  excluding  the  time               under this section, it must be shown that  the               institution  of the suit in question had  been               stayed  by  an injunction or order;  in  other               words,  the  section requires an order  or  an               injunction which stays the institution of  the               suit.  And so in cases falling  under  Section               15,  the party instituting the suit  would  by               such institution be in contempt of court.               But in our opinion, there would be no justifi-               cation for extending the application of s.  15               on  the  ground that the  institution  of  the               subsequent suit would be inconsistent with the               spirit or substance of the order passed in the               previous litigation  ........  " In the instant case, the order of stay passed by the  Karna- taka High Court had only stayed the collection of the excise duty,  which is a stage following levy under the  scheme  of the  Act.  Obviously there was no interim direction  of  the High Court in the matter of issue of notice for the  purpose of levy of duty. The relevant portion of Section 11A provid- ed.               "(1)  When  any duty of excise  has  not  been               levied  or  paid or has been  short-levied  or               short-paid or erroneously refunded, a  Central               Excise Officer may, within six months from the               relevant  date,  serve notice  on  the  person               chargeable  with the duty which has  not  been               levied or paid or which has been  short-levied               or short-paid or to whom the refund has  erro-               neously been made, requiring him to show cause               why he should not pay the amount specified  in               the notice:               (2) The Assistant Collector of Central  Excise               shall,  after considering the  representation,               if  any, made by the person on whom notice  is               served  under sub-section (1),  determine  the

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             amount of duty of.excise due from such  person               (not  being in excess of the amount  specified               in the notice) and thereupon such person shall               pay the amount so determined. ’ ’ Reference to Section 3 of the Act which contains the  charg- ing provision clearly shows that levy and collection are two distinct and separate 313 steps.  This Court in N.B. Sanjana, Assistant  Collector  of Central  Excise,  Bombay & Ors. v.  Elphinstone  Spinning  & Weaving Mills Co. Ltd., [1971] 3 SCR 506, at page 514  stat- ed:               "   ....  The charging provision section  3(i)               specifically  says "there shall be levied  and               collected  in  such a manner as  may  be  pre-               scribed  the duty of excise  .....  "It is  to               be  noted that sub-section (i) uses  both  the               expressions  "levied and collected"  and  that               clearly  shows that the expression "levy"  has               not  been  used  in the Act or  the  Rules  as               meaning actual collection."     The  High Court having directed stay of collection  had, therefore, not given any interim direction in the matter  of issue  of  notice or levy of the duty.  The  Explanation  in clear  terms refers to stay of service of notice. The  order of the High Court did not at all refer to service of notice. Therefore, there is force in the submission of the appellant that the benefit of the Explanation is not available in  the facts of the case.     No  notice  seems to have been issued in  this  case  in regard  to the period in question. Instead thereof  an  out- right demand had been served. The provisions of Section  11A (1) and (2) make it clear that the statutory scheme is  that in  the situations covered by the sub-section (1), a  notice of show cause has to be issued and sub-section (2)  requires that  the  cause shown by way of representation  has  to  be considered  by  the prescribed authority and then  only  the mount has to be determined. The scheme is in consonance with the rules of natural justice. An opportunity to be heard  is intended  to be afforded to the person who is likely  to  be prejudiced  when the order is made, before making the  order thereof.  Notice  is thus a condition  precedent  to  demand under sub-section (2). In the instant case, compliance  with this  statutory requirement has not been made,  and,  there- fore, the demand is in contravention of the statutory provi- sion.  Certain  other  authorities have been  cited  at  the hearing  by  counsel for both sides. Reference to  them,  we consider, is not necessary.     The  appeal has to be allowed and the demand raised  for the period 19.8.1975 to 23.2.1981 has to be set aside. There shall be no order for costs. The tax paid, if any, shall  be refunded to the appellant. S.R.                                            Appeal   al- lowed. 314